It is my belief that the energy sector in India is truly at a crossroads. Some of the challenges, including on commodity prices, have global dimensions. Others though are uniquely Indian. Addressing the challenges could help leapfrog the economy and let loose innovation and opportunity. Failing to do so on the other hand, would have perilous impact.

While I don’t wish to be an alarmist, statistics would bear out the concerns. Our oil import bill has touched $125 billion. The leadership of the country has set laudable goals for import reduction by 10 per cent, but the needle is set to swing by roughly the same quantum in the opposite way. Five years ago, India used to import 77 per cent of its oil needs. This is now north of 82 per cent. If something radical does not happen, oil imports will touch 90 per cent in less than a decade.

Coal-based power presents a grim picture, too, with almost a third of the power generation capacity either in operation or under construction is stranded on account of inadequate coal. Policy and judicial intransigence over the years have exacerbated the situation. The contagion has shifted to the banking system. Most of the banks in question are in the public sector, so finally, it is the taxpayer taking the hit.

As far as renewable energy goes, we have notionally achieved grid parity, having hit low prices for solar and wind projects through competitive auctions. However, at present, more than 85 per cent of the solar panels and equipment are imported, mostly from China. India’s operational capacity in solar cell manufacturing is only 18 per cent of the installation requirements, and even this is not fully utilised.

Other resources such as battery storage materials and permanent magnets for electric car motors are facing a similar situation. Current battery chemistries would require India to import heavily. The movement from a hydrocarbon-based economy to an electric-heavy economy, thus, does not automatically promise the relief we anticipate unless we are deliberate in our strategic response.

Is there a real path that takes us out of this mess? Indeed there is, even if a difficult one. At the core of that path lies a commitment to the customer. For the coal miner it is to the coal user, for the electricity producer it is the consumer. Addressing the strong underlying demand will support a manufacturing and supply ecosystem that would include resource explorers, miners, transporters, refiners, distributors, equipment suppliers, financiers, pretty much everyone. Domestic demand for products and commodities is by far the most valuable asset from India’s demographics and its stage of economic development. Our energy resource requirements are set to grow at 4 per cent to 5 per cent per annum, while it stagnates globally.

As a country our focus must shift to indigenous production, manufacturing, and where the conditions are right, to exports. This has happened in the automobile industry previously, which stood on its own legs, it must not happen through subsidies and sops. The good news is that every aspect of operation in our economy is being transformed every day through digital innovations, including in the energy and resource sector, despite the challenges. We must clear the field of red tape for innovation to play out to its potential and unleash the bright minds that are our biggest assets.

We have to squarely deal with legacy practices that have come to define the operating culture. Two thoughts, both of which rely heavily on digital prowess: First, is to rely on platform-based markets instead of bespoke arrangements, which will hugely transform the innovation landscape by limiting the play of outdated and intrusive rules. Second, is to make governance electronic and automatic without having the prospect of bureaucratic interventions and convenient interpretation of rules. In today’s digital world that is very possible. We need rules, but only essential ones.

As a country we have reaped the benefits of freeing up the oil industry from artificial controls and that has led to innovation and customer orientation. However, barring that one example, much of the energy value chain continues in shackles. Whether it is power, coal, gas, or renewables, it has become necessary to dismantle current economic structures and incentives, bring down artificial barriers, and eliminate anachronistic or incompatible controls, scything through the thicket of value destroying regulations that we have grown inured to. At the crossroads where we stand, we must make genuine choices towards minimum government and essential governance, and in that, new promising paths would undoubtedly emerge.

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Anish De is the Partner and leader for Energy and Natural Resources practice at KPMG India. He has over 24 years of experience in the fields of energy market design, regulation, pricing, energy trading, renewable energy fuels and utility regulation and transactions.

Anish De is the Partner and leader for Energy and Natural Resources practice at KPMG India. He has over 24 years of experience in the fields of energy market design, regulation, Show more.. pricing, energy trading, renewable energy fuels and utility regulation and transactions.